2016-04-22

How Are You Feeling About This Commodities Rebound?

Trading in steel futures in Shanghai hit their daily limits twice this week, helping boost seaborne iron ore. The key steelmaking ingredient is up 14 per cent this week to $65.5 a tonne, the highest in over a year. Aluminium prices rose more than 5 per cent.

Chinese traders have wrongfooted some of their more bearish counterparts in the west on the back of better housing and infrastructure demand after China’s economy rebounded in March.

Trading in futures on everything from steel reinforcement bars and hot-rolled coils to cotton and polyvinyl chloride has soared this week, prompting exchanges in Shanghai, Dalian and Zhengzhou to boost fees or issue warnings to investors. While the underlying products may be anything but glamorous, the numbers are eye-popping: contracts on more than 223 million metric tons of rebar changed hands on Thursday, more than China’s full-year production of the material used to strengthen concrete.

“The great ball of China money is moving away from bonds and stocks to commodities," said Zhang Guoyu, a Shanghai-based analyst at Tebon Securities Co. “We’ve seen a lot of people opening accounts for commodities futures recently."

"Financial investors are massively buying any commodities futures that they believe are cheap and they will push up prices until short investors are beaten," said Wang Bing, a senior broker with Orient Futures in Shanghai.

Open interest in the rebar contract has already fallen sharply, suggesting some of the trades are being executed by investors holding short positions that are getting squeezed.